“I think he is challenging this assumption that is often made that Australian banks have excessive profits," Mr Münchenberg said.

“If people want to claim it, then they need to demonstrate why, because the banks’ level of profitability is not out of step with other corporations."

“We often hear this argument that Australian banks are excessively profitable and it is usually used to justify demands for government to intervene in the banking sector, but I don’t think there is any real evidence that bank profits are excessive."

Australia and New Zealand Banking Group
,
Commonwealth Bank of Australia
,
National Australia Bank
and
Westpac Banking Corp
made a combined profit of more than $25 billion in 2012.

Banks have come in for heavy criticism from some customers this year for withholding part of the RBA’s official interest rate cuts.

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In an exclusive interview with the Financial Review, Mr Stevens said: “I don’t really have a strong view on whether bank profits in Australia are excessive. It seems to me that on the normal sorts of comparisons you might make, that case has to be made. It’s not obvious."

Mr Münchenberg said “this excessive profits argument is used to say that regardless of the true cost of money to the banks, you should pass on RBA rate cuts in full".

“I think what the RBA is saying is that there is no evidence that bank profits are excessive and I think the RBA is perfectly comfortable with the banks not passing on rate cuts in full," he said.

“They have made it clear they don’t expect that and that they take into account what the banks are likely to do when they make a decision on the cash rate and that mortgage rates are where they would like them to be."

Mr Stevens also said any future inquiry into the banking system should look beyond competition in the home-loan market to broader issues such as lending to business and the government’s guarantee on deposits.

“I would note we’ve had quite a few inquiries into competition and so on in the past five years," he said.

“I think if we are to have more inquiries into competition issues, we should broaden the scope to be just not mortgages. There are other things to think about other than the mortgage side of things. Business lending for example,’’ he said. “And there are probably other issues surrounding quite big questions like where ... is the appropriate point at which to put the regulatory parameter with this guarantee of deposits, because the tendency is always for people to want to stretch that.’’

Australian Chamber of Commerce and Industry chief economist Greg Evans said a review of the business lending market was overdue following the global financial crisis.

“In the aftermath of the GFC there is a stronger case to examine issues including the impact of a decreasing number of participants in lending markets and the repricing of risk to businesses," he said.

“There has been changes in the cost and availability of finance to business, especially smaller enterprises, and a detailed examination would help with information provision but also sharpen the attention of the major lenders and the difficult circumstances facing business.

“As the economy rebalances and the non-mining sector looks to expand and invest, this could be restrained where lending institutions are reluctant to lend or onerous lending conditions are applied beyond what is reasonable risk-provisioning."

Mr Münchenberg agreed any inquiry into the banking sector should have a broad mandate.

“I would agree that if there is a banking inquiry, it should be a comprehensive look at the banking system and its place in the economy and not another one of these inquiries that starts with the premise that there is a lack of competition in mortgages and struggles to find evidence of that," he said.